ESG-themed funds could not escape the downward impact of falling markets during October, but the momentum for new ways of managing money continues to build.

Equity markets fell in October and even funds that tilt investment policy towards environmental, social and governance goals (ESG) did not resist the downdraft, but they did not fall by as much as the wider market.

Total assets invested in ESG-themed exchange traded funds and exchange traded products fell 2.9 per cent in October from the previous month, standing at $21.85 billion. By contrast, for all ETFs and ETPs, assets fell almost 6 per cent last month, according to ETFGI, a research and consultancy firm. ESG ETFs and ETPs listed globally gathered $1.06 billion in net new assets during October.

The data came out as a raft of global banks gave more impetus to a United Nations-endorsed financial programme designed to put the financial services sector on the same page as the UN’s Sustainable Development Goals and the Paris Climate Agreement. Banks representing a total of $17 trillion of assets, including Barclays, ICBC, Westpac, Nordea, BNP Paribas and National Australia Bank, have signed the agreements.

Nordea wanted to “contribute to the transition to a low carbon economy and society’s goals”, Casper von Koskull, president and group CEO of Nordea, said of the banks’ move. 

The “Principles for Responsible Banking” cover objective such as reducing the harms banks have on the environment; working with clients to create more positive effects and push for good governance and responsible banking.

Following the banks’ announcement, Satya Tripathi, assistant secretary general of UN Environment, said: “The global banking industry is stepping up to the sustainability challenge. I’m optimistic we’ll see a realignment of business practice – one that embraces the fact that green and socially responsible business is the best business.”

Once seen as a fringe issue, the drive to embed ESG principles into how wealth managers act and oversee clients’ money is becoming more mainstream, with constant media and industry commentary, conferences, product and service launches. There remains some debate about how much the added focus on such issues adds to the investor’s financial bottom line, and whether such approaches come at the expense of returns.

The Aite Group, a research organisation, has recently issued a report, How ESG Integration and Data Are Changing Buy-Side Firms, which finds that individual firms’ approaches can vary significantly, along with the extent to which investment analysis is performed.

“Much has been made of the dispersion of ratings across ESG ratings providers, and access to multiple providers will allow investment firms to understand what leads to differences and which viewpoint aligns best with in-house views,” Paul Sinthunont, analyst at Aite Group, said. “Diverging ratings are not viewed as inherently bad, just like diverging broker research recomemdnations,” he added. 

Chilly for ESG
As the ETFGI data shows, all types of investment, including those in the ESG sector, had a chilly October.

“Few markets managed to avoid the October sell off, as investors grew jittery at the prospects of further rate hikes from the US treasury and any hope of resolutions to trade disputes appeared to be diminishing, be it in Europe or the US. Developed and developing markets saw similar declines during the month,” Deborah Fuhr, managing partner and a founder of ETFGI, said. The S&P 500 fell 6.84 per cent in October; European markets fell 7.82 per cent and emerging markets were down 7.60 per cent, and frontier markets fell 3.36 per cent.